Globalstar, Inc. has signed a merger agreement with Thermo Acquisitions, Inc. pursuant to which the following assets will be combined with Globalstar: metro fiber provider FiberLight, LLC (FiberLight), 15.5 million shares of common stock of CenturyLink, Inc., $100 million of cash and minority investments in complementary businesses and assets of $25 million in exchange for Globalstar common stock valued at approximately $1.65 billion, subject to adjustments. Thermo Acquisition, Inc. is controlled by Jay Monroe, Executive Chairman of the Board of Directors and Chief Executive Officer of Globalstar. At closing the parent company will be renamed Thermo Companies, Inc., and its stock will continue to trade publicly. The transaction has been unanimously recommended by the Special Committee of the Board of Directors of Globalstar, consisting entirely of independent directors, and unanimously approved by the full Board of Directors. The merger is expected to close in the third quarter of 2018.
Jay Monroe, Executive Chairman of the Board of Directors and Chief Executive Officer of Globalstar and founder and controlling shareholder of Thermo Capital Partners and its affiliates (Thermo), said: “This transaction brings together strategic assets that are critical to the complex needs of next-generation networks, allowing service providers to deliver the sophisticated services their customers increasingly expect. The combined entity is uniquely positioned to meet a broad range of customer requirements, from low latency and high capacity networks, to consistent connectivity across large geographical areas. Long-term shareholders should benefit significantly from the combined entity’s strong balance sheet and recurring revenue from the portfolio of satellites, spectrum, fiber infrastructure and other related assets.”
The combined company will hold a unique set of assets including Globalstar’s world-wide satellite business with 2017 Adjusted EBITDA of approximately $32 million and projected pro forma net debt outstanding of approximately $380 million at closing; a spectrum management company facilitating transactions related to Globalstar’s U.S. and international terrestrial spectrum; FiberLight, a metro fiber provider serving 40 of the top 50 U.S. bandwidth providers across approximately 14,000 route miles with 2017 Adjusted EBITDA of approximately $67 million based on unaudited results and approximately $200 million of net debt at closing; and Thermo Investments, an investment management company with initial investments in CenturyLink stock valued today at approximately $275 million, which is expected to provide annual dividends of approximately $33.5 million, minority investments in Pivotal Commware and Orion Labs, plus $100 million of investable cash. Looking forward to the full year 2019, management expects Adjusted EBITDA1 of the combined entity to be in excess of $165 million and combined net debt2 at December 31, 2019 of less than $200 million.
Diverse Portfolio of Assets
The merger will organize the pro forma company into four principal operating subsidiaries under the name Thermo Companies, Inc. (Thermo Companies) as the public company. These operations include Globalstar, FiberLight, Global SpectrumCo and Thermo Investments; refer to associated chart for further details.
Based in Alpharetta, Georgia, FiberLight operates a unique fiber optic asset base providing dark and lit fiber services over its footprint of approximately 14,000 route miles across Texas, the Southeast, Mid-Atlantic and Bay Area providing predominantly metropolitan high-bandwidth solutions to enterprise and wireless carriers. The combination of network assets, attractive markets, quality leadership and disciplined capital deployment has resulted in a growing revenue base across an expanding footprint. Thermo originally invested in the fiber industry in 2002 with Xspedius Management Co.’s (Xspedius) acquisition of e.spire Communications and spun FiberLight out of Xspedius in 2005. Xspedius was acquired by Time Warner Telecom in 2006, which subsequently merged with Level 3 Communications in 2014, and then merged with CenturyLink last year. Over the past decade, FiberLight grew from a small operator of individual dark fiber markets to a significant market participant in the fiber industry with a Tier 1 customer base represented by some of the largest technology companies, cable companies and wireless carriers in the U.S.
CenturyLink completed its merger with Level 3 Communications in November 2017 creating a global leader in network services with 450,000 route miles of fiber, over 100,000 buildings on-net, and a management team focused on driving significant free cash flow per share and maintaining its dividend. Thermo Investments will hold 15.5 million shares in CenturyLink with a current value of $275 million and expected annual dividends of $33.5 million. Thermo Investments also will manage approximately $100 million in cash for future investments and will deploy this cash in strategies consistent with Thermo’s history of acquiring asset intensive businesses at early stages of transformational industry developments. These investments are expected to include control and non-control opportunities across capital structures with cash flow reinvested within Thermo Companies or deployed into new opportunities. Thermo also will contribute $25 million of other assets including minority investments in Pivotal Commware and Orion Labs and the real estate comprising Globalstar’s new headquarters building, all contributed at cost.
The merger is expected to create a fundamentally stronger company with significantly reduced leverage and diversified holdings serving the global telecommunications industry. The anticipated combined Adjusted EBITDA of pro forma Thermo Companies will be at least 4x standalone Globalstar. The pro forma cash flow of the combined company will be derived from five principal sources including (i) satellite operations, (ii) leasing or other monetization revenue from global spectrum, (iii) FiberLight operations, (iv) dividend income and (v) other Thermo Investments’ returns. The pro forma company is expected to benefit from Globalstar’s $1.7 billion U.S. net operating losses allowing growth in a tax efficient manner. By materially improving the combined company’s liquidity position, Globalstar believes the merger will best position the company for monetizing its 2.4 GHz terrestrial spectrum in addition to maximizing the global opportunities to participate in terrestrial deployments of all four of its spectrum bands. Globalstar is currently seeking standardization approval of its 2.4 GHz spectrum which is proceeding under a “3GPP working item” with expected approval in the next year.
Globalstar has reached an agreement in principle with its lenders on an amendment of its BPIFAE (formerly known as COFACE) senior debt facility, which is subject in all respects to lender and BPIFAE committee approvals as well as satisfactory final due diligence. Additionally, final amended terms will be subject to documentation in a binding agreement to be agreed among the parties that will be effective concurrent with the closing of the merger. The agreement in principle provides for annual deferrals of principal amortization up to $30 million and a fixed margin of 3.25% over 6 month LIBOR, both subject to liquidity tests performed over time. Additionally, the financial covenants and certain other terms are expected to be amended. FiberLight is seeking an amendment to its $255 million senior debt facility with CoBank, including additional financing capacity to fulfill its current project backlog. FiberLight is requesting that the refinanced credit facility retain its favorable 1% annual principal amortization. Any amended terms are subject in all respects to the approval of CoBank.
Anticipated Rights Offering for Minority Shareholders
Upon completion of the merger, Thermo Companies expects to initiate a rights offering of up to $100 million for minority shareholders. The rights offering would be consummated approximately 45 days following closing, is expected to be available to holders of record on the date of closing and will include an over-subscription privilege allowing for the subscription of additional shares with allotments otherwise on a pro rata basis.
Structure & Approvals
As a result of the merger, Globalstar Chairman and CEO Jay Monroe will increase his beneficial ownership in the pro forma company from a fully diluted ownership of approximately 58% today to between 83% and 87% at closing. The final ownership level is variable based on the 20-day volume weighted average share price upon close. The issuance price is subject to a collar set at 80% and 120% of Globalstar’s 20-day volume weighted average share price on April 24, 2018, the date the Merger Agreement was executed. The Merger Agreement has been recommended by Globalstar’s Special Committee of Independent Directors, who were represented by independent counsel and which retained Moelis & Company (Moelis) to serve as its exclusive financial advisor. Moelis has rendered an opinion to the Special Committee that as of the date of the Merger Agreement, subject to factors and assumptions set forth in the opinion, that the value to be paid is fair to minority stockholders of Globalstar from a financial point of view.
Principal Merger Agreement Terms
The merger consideration will consist of shares of Globalstar common stock with a value of approximately $1.65 billion, subject to adjustment based on changes to the value of CenturyLink’s share price between signing and close, FiberLight’s last twelve months EBITDA at close and FiberLight’s net debt position at close. Completion of the transaction is subject to the satisfaction of the conditions set forth in the Merger Agreement, including approval by the lenders of Globalstar and FiberLight and by Globalstar’s stockholders. Accordingly, there can be no assurance that this transaction will be consummated.
Pursuant to the terms of the Merger Agreement, Thermo and its affiliates who own Globalstar common stock have signed a voting agreement pursuant to which it and its affiliates have granted a proxy and/or agreed to vote in favor of the transaction at any meeting of stockholders. Globalstar expects to seek approval from its stockholders during the second quarter of 2018, subject to Securities and Exchange Commission (SEC) review of the prospectus/proxy statement to be filed by Globalstar for the proposed transaction.